1/ Fascinating and important report from Goldman Sachs. They have upgraded long-term GDP of China because of increased exports, but see this as reducing, not increasing, rest of world GDP. Chinese displacement of domestic manufacturing swamps any positives from cheaper goods. 2/ This confirms what I have long suspected: Chinese growth does not "contribute" to global growth except in the purely arithmetic sense. It does not actually create positive feedbacks that lift other countries' growth. That's by design...

Today, a @CFR_org task force released a report on how to enhance U.S. economic security to ensure that its prowess in / access to key technologies are not dependent on China or other adversaries. I moderated a panel today with task force co-chairs Biden Commerce Secretary @GinaRaimondo, Trump 1st term Treasury under secretary Justin Muzinich, and @LockheedMartin CEO James Taiclet. The report is full of granular, practical advice. You can read it here: cfr.org/task-force-rep… A few key takeaways: the panelists were convinced bipartisan consensus exists for policies of thoughtful intervention to shore up U.S. economic security. Emphasized such policies must leverage, not displace, private investment. Key areas of attention: AI, quantum, biotech.

You often hear the tech cognoscenti disparage the inability of government statisticians to capture what is going on in the economy. They often confuse a sample with a census. Here's why that matters....

https://twitter.com/chamath/status/1964737357648965661

2/ A sample can be done extremely quickly. The unemployment rate & CPI are both based on samples, of households, and consumer spending outlets, & thus come out quickly and are never revised (except for seasonal adjustment). This imparts a false sense of precision and finality.

Humanity's existence is threatened not by plague or environmental catastrophe but by its own passive acceptance of decline. My column looks at the novel case two economists, Dean Spears & @MikeGeruso make amazon.com/dp/1668057336 against depopulation. wsj.com/economy/global… 2/ Spears and Geruso don't invoke the usual risks of falling population such as a smaller labor force and more pressure on Social Security. Rather, they argue a larger, or stable, population is a good thing in and of itself.

1/ If Trump forces Powell out, markets could no longer assume Fed will hit 2% inflation no matter what. Inflation would be subordinated to White House's larger agenda. No longer the brakes, the Fed would be part of the engine. My column: wsj.com/economy/centra… 2/ It's remarkable that through pandemic, stimulus, tariffs, deportations & soaring debt, inflation expectations stayed anchored around 2%. A victory for post-93 regime of political noninterference & inflation targeting.

Whatever your probability of recession three weeks ago, it should be lower today. Five reasons why: 1. April employment was first "hard" data since 4/2 tariff announcement, with March tariffs already in place, and tariffs left no imprint on hiring, even at the industry level. 2. Policy is endogenous. Trump's tariff announcements tanked the market a month ago, so he walked them back (pauses, exemptions, plea for talks w/China). Businesses updating their assumptions will logically assume further Trump capitulation and act accordingly.

Where did all those imports go in Q1? An update. The gap between surging imports and subdued inventories was even larger based on Census Bureau's March wholesale inventories. Bureau of Economic Analysis made an adjustment boosting March inventories, eliminating part of the discrepancy. Without that adjustment, GDP would have shrunk even more, by 1.5% instead of 0.3%, according to Ben Herzon of S&P Global. So we are still left with a mystery. Why didn't inventories rise more? Why is the source data for inventories so weak? Where the heck are all those imports going?

1/ This 7-year old interview w/Apple CEO Tim Cook is getting attention now as proof of why tariffs don't work. Some context is in order. Here, Cook claims companies don't go to China for low labor costs but for skills that aren't available in the U.S. HOWEVER:

https://twitter.com/SpencerHakimian/status/1910845609952551353

2/ That may be true now, but not when Apple went to China 25 years ago. Apple had factories (& skills) in U.S. at the time. Cook came to Apple in 1998 to run operations, closed those factories and, imitating Dell & Compaq, offshored production to Asia. wsj.com/articles/tim-c…

Trump wants a lower trade deficit, but his tax cuts and pro-investment policies would make it bigger. Here's how to reconcile them: austerity. Steep spending cuts will lower inflation, interest rates and the dollar. I explain how here. /1 wsj.com/economy/trade/… 2/ The link between the fiscal and external balance is well established; thus the nickname "twin deficits." IMF study found that $1 in fiscal consolidation improves the current account by 30-50 cents for a low-trade dependency country like U.S.

Houses are places to live, but they're also assets, and the components of asset valuation - price, interest rates, and rents - show them overvalued now, near bubble-level peaks. While a bust isn't imminent, I explain here why real returns could be poor for a while. wsj.com/finance/invest… 2/ Real home prices and price/income ratios aren't good valuation measures when real cost & quality of shelter is rising. Price to rent ratios are superior because owning and renting are close substitutes. So rents up 24% v. prices up 51% since 2019 is a big red flag.

1/ The 2021-23 inflation in a nutshell. A policy-induced expansion in demand coincided with pandemic-induced sectoral demand disclocations and supply constraints. Lower immigration, virus, and early retirements shrank labor force. Supply curves are short-run vertical... 2/ ... so this caused a large price level increase. The transitory hypothesis said with time supply curves would flatten out. With inflation expectations anchored, the price level would stabilize/fall and inflation drop back.

1/A few years ago Xi said, "The East is rising, the West is declining." Looks like hubris now w/ China's economy struggling, U.S.' humming. China may never displace U.S. as world's economic leader, but its manufacturing will keep it a threat. My deep dive: wsj.com/economy/why-xi… 2/ China's GDP has slipped to 64% of US level from 75%. It may one day rebound to 100% but has no plausible path to 150%-200%, Logan Wright of @rhodium_group tells me. "Beijing will never be able to make a credible claim to global economic primacy."

1/ The unemployment rate is the cleanest indicator of labor demand and supply and its 0.5 pp rise since April clearly signals the economy is growing below trend and perhaps headed towards stall speed, in contrast to signal from payrolls. 2/Unemployment rose because household employment fell, as did labor force. I don't read too much negativity into that; the two are noisy but correlated, which is why I focus on the unemployment rate. Also, household employment adjusted to payroll definition rose 188,000...

1/@JakeSullivan46's new article in Foreign Affairs is the de facto Biden Doctrine. He shows how Biden's foreign policy choices represent his approach to sustaining American power in its third post-war phase ...foreignaffairs.com/united-states/… 2/ Phase 1: Truman - 1980s, focused on building up democracieds and containing USSR; Phase 2 - the hyperpower preoccupied with building the institutions of globalization. Now: competition and interdependence...primarily with China ...

I'm in a contrarian state of mind today. I think the job market is not as strong as the headline payroll number suggests. Here's why. 1/ First, household employment was only up 86,000, and adjusted to payroll concept, was actually *down* 7,000. 2/ This is why unemployment stayed at recent high of 3.8%. It was NOT because of labor force, which grew a trend-like 90,000. Participation was flat.

1/ Michael, we agree productivity and wages are linked. You say raise wages, productivity will follow. I say the opposite. I can see a case for either, but if you raise wages and productivity doesn't follow, that's a recipe for disaster. Which is what I fear is happening.

https://twitter.com/michaelxpettis/status/1704789534372692271

2/ Does protection raise productivity and wages? If that were universally true, India and Brazil would have the world's highest wages. It worked for east Asia because it went hand in hand with export orientation, high investment, and businesses that learned & adapted quickly.

1/ I get why auto workers think they deserve a raise, or fewer hours. Isn't everyone else getting that? But the reality is the opposite: pay must track productivity and American factory managers' and workers' productivity is not keeping up. My column. wsj.com/economy/americ… 2/ The data isn't great, but what we have is sobering. Manufacturing productivity has barely advanced since 2009, and lagged other countries. In motor vehicles, it's actually fallen.

The smart people said to ignore Fitch's downgrade of the U.S. credit rating. I'm less sanguine. The circumstances are completely different from 2011 when S&P downgraded the U.S. The fiscal situation is much more worrisome. My column explores. wsj.com/articles/fitch… 2/ True, Fitch didn't tell us anything we didn't already know. And ratings are of questionable value on sovereign local currency debt which is virtually impervious to default. But it joined an accumulation of red flags. For instance ...

Did pandemic or stimulus cause the inflation? Ben Bernanke & @ojblanchard1 conclude: pandemic caused the initial surge, stimulus sustained it. To me theirs is the most satisfying take yet on the inflation surge. wsj.com/articles/why-i… 2/ For Blanchard, this represents a change in views. He famously predicted in 2021 that the Biden stimulus would overheat the labor market and drive inflation up. But in this paper he acknowledges that's not the mechanism that drove inflation in 2021. brookings.edu/wp-content/upl…

The Fed has a problem with inflation and banks. Congress and Biden have a problem with the debt ceiling. A deal to cut federal spending could address all of them. wsj.com/articles/a-deb… 2/ Biden doesn't want to negotiate: the nation's full faith and credit should not be a bargaining chip. And his team thinks the spending caps Obama agreed to with Rs in 2011 were a mistake; it saddled US with austerity at worst possible time.

India's population may have surpassed China's this month, an event heralding a major shift in the global order. “We are on the cusp of maybe the most momentous population transition of the last 200 years." By @ByShanLi and @QiLiyan 2/ India’s rising population means it’s likely to keep its economy growing, buy more of the world’s goods and play a bigger role in global affairs, even as it grapples with poverty and a lack of jobs. Meanwhile ...